Showa Denko K.K. (SDK) Reports Operating Income Up 24.4% in Jan.-Sept. Period.

Tokyo, Japan, Nov 7, 2006 - (JCN Newswire) - Showa Denko  K.K. ('SDK; TSE: 4004) announces a 24.4% increase in operating income for the first nine months (January-September) of 2006, to JPY 51,709 million, on net sales up 12.2%, to JPY 666,396 million. Ordinary income also increased 24.8%, to JPY 44,148 million. Net income for the quarter was down 10.5%, to JPY 25,002 million.

At the beginning of this year, SDK and its Group companies started implementing the new medium-term consolidated business plan, the Passion Project, with the aim of establishing the groundwork for long-term sustainable growth. Under the plan, we continued promoting structural reforms and cost reduction efforts.

I) Consolidated Financial Summary for the First Nine Months September 30, 2006

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                                                       (Yen millions)
                              Nine Months Ended   Change
                         9/30/2006    9/30/2005   % YoY        US $*
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Operating Results
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Net Sales                  666,396      593,669    12.2    5,625,217
Operating Income            51,709       41,557    24.4      438,580
Income Before Taxes         44,148       35,386    24.8      374,450
Net Income                  25,002       27,946   (10.5)     212,058
EPS (basic)(yen)             21.81        24.46      --        0.185
EPS (diluted)(yen)           20.47        22.73      --        0.174

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                             As of        As of
                         9/30/2006    9/30/2005                US $*
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Financial Position
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Total Assets             1,027,664      943,739            8,716,400
Total Sh'hldrs Equity      256,887      210,526            2,178,855
Shareholders EPS (yen)      194.74       184.27                 1.65
Sh'hldrs Equity Ratio (%)     22.2         22.3                 22.2

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The U.S.$ is valued at JPY 117.90 for this statement.

Performance Sales and Operating Income by Segment

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                                                       (Yen millions)
                       Nine Months Ended          Three Months Ended
                    9/30/2006  9/30/2005   Change    9/30/06 9/30/05
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Petrochemicals
   Net Sales          241,266    219,367   21,899     96,021  76,756
   Operating Income    12,621     17,386   (4,765)     5,884   5,978

Chemicals
   Net Sales           57,514     53,436    4,078     19,473  17,185
   Operating Income     2,923      3,226     (303)       966     649

Electronics
   Net Sales          120,394     96,998   23,396     41,792  34,331
   Operating Income    22,350     13,141    9,209      6,502   5,374

Inorganic Materials
   Net Sales           53,599     45,137    8,436     18,387  15,294
   Operating Income    11,251      6,199    5,052      4,098   2,047

Aluminum
   Net Sales          193,624    178,762   14,861     63,731  59,183
   Operating Income     4,933      6,495   (1,563)     1,140   1,941

HQ costs and other
   Net Sales               --        --        --        --      --
   Operating Income    (2,369)   (4,891)   (2,522)     (664) (1,547)
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Total
   Net Sales          666,396    593,699   72,697   293,404  202,749
   Operating Income    51,709     41,557   10,152    17,925   14,442
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A breakdown of net sales and operating income by segment in the January-September 2006 period follows.

Petrochemicals

Sales rose 10.0%, to JPY 241,266 million. However, operating income fell 27.4%, to JPY 12,621 million, due to a decrease in the shipment volumes of olefins as a result of the maintenance shutdown of the ethylene plant in the first half of the year. Nevertheless, sales of olefins and organic chemicals in the July-September period were up due to continued high plant utilization and increases in selling prices, reflecting a rise in the raw material costs. Sales of plastics by Showa Highpolymer Co., Ltd., increased slightly due to a rise in the selling prices.

Chemicals

Sales rose 7.6%, to JPY 57,514 million. However, operating income dropped 9.4%, to JPY 2,923 million, due partly to the rise in raw material costs for acrylonitrile production. Sales of liquefied ammonia and acrylonitrile in the July-September period were up due to the rise in selling prices. Sales of specialty chemicals increased due to higher shipment volumes of Shoprene polychloroprene synthetic rubber and Shodex liquid chromatography columns, despite a slight decline in the shipment volumes of amino acids.

Electronics

Sales increased 24.1%, to JPY 120,394 million, and operating income jumped 70.1%, to JPY 22,350 million. Sales of hard disk (HD) media in the July-September period increased, reflecting increased production capacity. Sales of compound semiconductors also increased due to higher shipment volumes. In the electronic materials business, sales of rare earth magnetic alloys, advanced ceramics and fine carbons were up due to higher shipment volumes.

Inorganics

Sales increased 18.7%, to JPY 53,599 million and operating income climbed 81.5%, to JPY 11,251 million. In the carbons business, sales of graphite electrodes increased due to continued steady shipment volumes. In the ceramics business, sales also increased, centering on alumina, due to steady shipment volumes and selling prices.

Aluminum

Sales rose 8.3%, to JPY 193,624 million, but operating income fell 24.1%, to JPY 4,933 million, reflecting the effect of soaring aluminum ingot prices on aluminum cans and some other product lines. Sales of aluminum ingots in the July-September period were up, reflecting soaring prices on the international market. Sales of rolled products, extrusions/specialty products and Shotic forgings rose due to increases in shipment volumes and selling prices, reflecting higher aluminum ingot prices. Sales of heat exchangers also rose due to increased shipment volumes of automotive heat exchangers. Meanwhile, sales of aluminum cans fell slightly due to the fall in shipment volumes.

II) Financial Conditions (As compared with the conditions at June 30, 2006)

Total assets at the end of the third quarter amounted to JPY 1,027,664 million, an increase of JPY 46,808 million from the level at June 30, 2006. The increase in total assets was due to an increase in inventories, reflecting the rise in raw material costs, as well as an increase in fixed assets through capital investment. Interest-bearing debt increased JPY 2,491 million, to JPY 430,222 million. Total equity at the end of the quarter increased JPY 6,139 million, to JPY 256,887 million, due mainly to an increase in net income for the quarter.

III) Major Steps Taken after the Announcement of the Half-year Results

Petrochemicals

- Turning Showa Highpolymer into a fully owned subsidiary through a share exchange agreement -

Showa Highpolymer, a key player in SDK's specialty polymers operations, became SDK's fully owned subsidiary on September 1 through a share exchange agreement. Showa Highpolymer is a leading supplier of vinyl ester, biodegradable plastic and emulsion products in Japan.

Electronics

- Completion of a new hard disk media R&D facility -

Our new HD media R&D facility, whose construction began in October 2005, was completed in August. With the start-up of the new facility, we will improve our proprietary perpendicular magnetic recording technology and accelerate the development of the next-generation HD media with greater storage capacity. To meet strong request from customers, we will use part of the new facility for commercial production.

- Merger of HD media subsidiary in Japan -

SDK merged Showa Denko HD K.K., a fully owned subsidiary for the production of HD media, on November 1. SDK will enhance the efficiency of its HD media business through integration of the development, marketing and production functions.

- Expansion of high-purity chlorine production capacity -

We started expanding our production capacity of high-purity chlorine at Kawasaki to meet growing demand for use in the manufacture of semiconductors and liquid crystal displays (LCDs). The purification capacity will increase from 300 tons a year to 1,000 tons a year, and the filling capacity from 300 tons a year to 600 tons a year, both by the end of first half, 2007.

- Establishment of a specialty-gas marketing company in South Korea -

In November, we started full-scale marketing of our specialty gases for the South Korean semiconductor/LCD market through a newly established subsidiary, Korea Showa Chemicals Co. Under the new setup, the Showa Denko Group will provide its specialty gases through five marketing units located in Japan, Taiwan, China, Singapore and South Korea.

- Construction of second rare-earth magnetic alloy plant -

We established a new joint venture company, Ganzhou Zhaori Rare Earth New Materials Co., Ltd., at Ganzhou, Jiangxi Province, China, in cooperation with Tokai Trade Co., Ltd. of Japan and two Chinese rare-earth mineral producers. We intend to ensure stable procurement of raw materials for high-performance magnets for the fast growing automotive market. We are already operating a rare-earth magnetic alloy plant in Baotou, Inner Mongolia. Upon completion of the second plant, we will have a total production capacity of 3,000 tons a year.

- Expansion of VGCF carbon nanofiber production capacity -

We decided to increase our production capacity of VGCF carbon nanofibers from 40 tons a year to 100 tons a year. Construction of a new facility will begin later this year, with start-up scheduled for early 2007. VGCF carbon nanofibers are used mainly as additives in lithium-ion batteries.

Aluminum

- Withdrawal from commodity aluminum foils business -

We decided to withdraw from the production and sale of commodity aluminum foils used mainly for food packaging. We will stop receiving new orders in December this year and terminate sales at the end of April next year.

- Launch of "Showa Ecopipe" based on recycled PET bottles -

In July, Showa Denko Kenzai K.K., a consolidated subsidiary of SDK, started full-scale marketing of new drainage/ventilation pipes for homes. The product, sold under the trade name of "Showa Ecopipe", is based on recycled PET bottles.

IV) The Showa Denko Group's performance forecast for FY 2006 (Announced Aug. 8, 2006):

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                                                        (Yen millions)
          Forecast term    Results term   Difference   Rate of
                ending 12/31/06  ended 12/31/05                 change
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Net sales                900,000        811,899       88,101     10.9%
Operating income         67,500         57,191       10,309     18.0%
Ordinary income          56,000         46,960        9,040     19.3%
Net income               26,500         15,647       10,853     69.4%

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Net sales and operating income forecast by business segment

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                                                        (Yen millions)
          Forecast term    Results term   Difference   Rate of
                ending 12/31/06  ended 12/31/05                 change
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Petrochemicals
   Net Sales            325,000        301,189       23,811      7.9%
   Operating Income      15,500         21,800       (6,300)

Chemicals
   Net Sales             80,000         74,001        5,999      8.1%
   Operating Income       5,000          4,700          300

Electronics
   Net Sales            165,000        133,902       31,098     23,2%
   Operating Income      32,000         19,700       12,300

Inorganic Materials
   Net Sales             70,000         61,882        8,118     13.1%
   Operating Income      13,500          8,300        5,200

Aluminum
   Net Sales            260,000        240,924       19,076      7.9%
   Operating Income       7,000          8,300       (1,300)

HQ costs and other
   Net Sales                 --             --           --       --
   Operating Income      (5,500)        (5,700)         200

Total
   Net Sales            900,000        811,899       88,101     10.9%
   Operating Income      67,500         57,200       10,300

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About Showa Denko K.K.

Showa Denko K.K. ('SDK'; TSE: 4004, US: SHWDF) is a major manufacturer and marketer of chemical products serving a wide range of fields ranging from heavy industry to the electronic and computer industries. SDK makes petrochemicals (ethylene, propylene), aluminum products (ingots, rods), electronic equipment (hard disks for computers) and inorganic materials (ceramics, carbons). The company has overseas operations and a joint venture with Netherlands-based Montell and Nippon Petrochemicals to make and market polypropylenes. In March 2001, SDK merged with Showa Denko Aluminum Corporation to strengthen the high-value-added fabricated aluminum products operations, and is today developing next-generation optical communications-use wafers. For more information, please visit www.sdk.co.jp.

Source: Showa Denko K.K.

Contact:

Showa Denko K.K.
Nobuhiro Kato
[e-mail]
[phone]

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